BT 2002 Annual Report Download - page 23

Business review
22 BT Group Annual Report and Form 20-F 2002
broadband frequency band of a shared loop after
consultation and input by BT of relevant cost calculations.
On 20 March 2002, the European Commission
announced infringement proceedings against ®ve member
states with regard to the Regulation on Local Loop
Unbundling. This does not include the UK.
Carrier pre-selection
From 1 January 2000, the European Commission required
the provision of carrier pre-selection (CPS) by Member State
operators with signi®cant market power. CPS allows
customers to opt for certain classes of call to be carried by
an alternative operator, selected in advance, without having
to dial additional access codes.
Software changes to our local exchanges could not be
introduced before January 2001 (for national and
international calls) and January 2002 (for all other calls) and
the UK Government applied to the European Commission
for a deferment of our obligation. The European
Commission granted a limited deferment until 1 April 2000,
but decided that CPS should be provided in the interim by
means of auto-diallers on customers' premises.
We introduced permanent CPS service in two phases,
national and international calls on 12 December 2000, and
all calls on 8 December 2001. Both phases were launched
ahead of schedule, with interim CPS being withdrawn on
the launch of phase 2.
Leased lines
Oftel published a Direction in respect of Partial Private
Circuits (PPCs) in March 2001. This resulted from a review
of the competitiveness of the national leased lines market in
the UK and the need for regulation in this sector. Oftel
concluded that more competition was needed in the
provision of wholesale `terminating segments' and required
that we offer PPCs to other operators at cost-based prices.
Following a period of industry negotiation on detailed terms
and conditions for the new products, the PPC portfolio was
successfully launched on 1 August 2001 encompassing
`local tails' leased lines at a range of bandwidths from
64kbit/s to 622Mbit/s. Take up of the new products by
other licensed operators has been extremely rapid.
Following subsequent requests from other licensed
operators, Oftel has carried out investigations on a range of
technical and commercial PPC-related issues, and is
expected to announce the results of these investigations
during Spring/Summer 2002. We are continuing to develop
further enhancements to the initial product range.
Universal service
In August 2001, Oftel published the conclusions of its
review of universal service (USO). We endorse Oftel's view
that the time is not yet right to extend the USO to include
broadband services. However, we are disappointed by
Oftel's failure to acknowledge the strong case for industry
funding of the signi®cant net costs that fall on us in
providing universal service. We remain committed to
universal service.
Flat rate internet interconnection
On 26 May 2000, Oftel issued a Direction stating that we
should provide an interconnection product under our
licence for ¯at rate internet access call origination (FRIACO).
The Direction requires us to provide call origination for
internet access, not on the standard pence per minute
basis but with charging based upon network capacity
purchased. The Direction required us to offer FRIACO at the
local exchange level from 1 June 2000. We complied with
this Direction. In November 2000, Oftel began consulting on
proposals to make FRIACO available at the next level up
from the local exchange (at the digital main switching unit).
A Final Direction on single tandem FRIACO was issued on
15 February 2001 requiring us to offer such a product, but
with safeguards to prevent network congestion.
The charges for both FRIACO services are subject to
RPI-X controls under the Network Charge Control regime.
UK Government's review of telecommunications and
broadcasting regulation
The UK Government has completed a review of
telecommunications and broadcasting regulation. A new
regulatory body is being established, called the Of®ce of
Communications (Ofcom) to amalgamate the roles of the
®ve existing regulatory agencies: the Director General of
Telecommunications; the Independent Television
Commission; the Broadcasting Standards Commission; the
Radio Authority and the Radiocommunications Agency.
Ofcom will be headed by a chairman and chief executive
supported by executive and non-executive board members.
The legislation is being dealt with in two parts. The ®rst
stage is the Of®ce of Communications Act passed in March
2002, which enables the board, of®ce and budgets of
Ofcom to be established, but does not enable Ofcom to
exercise any regulatory functions. The second stage is a
Communications Bill. The draft Bill was published in May
2002 and the ®nal Bill is expected to be passed by
Parliament by the Summer of 2003. It will confer regulatory
functions on Ofcom, which will be able to take up those
functions when the Bill is brought into force, possibly later in
2003. The main changes for telecoms will be the
introduction of ®nes for breach of regulatory obligations and,
in combination with statutory instruments to be issued by
the Summer of 2003, the creation of a new regulatory
regime to implement the requirements of the new EU
directives for general authorisations, instead of individual
licences. We support the Government's vision for the
converging sector and welcome the intention not to apply
broadcasting rules to internet content. We also welcome the
provisions in the draft Bill for full rights of appeal against
regulatory decisions, and the incorporation within Ofcom of
incentives to reduce the level of regulation when
appropriate.
Relationship with the UK Government
The UK Government collectively is our largest customer, but
the provision of services to any one department or agency
of the UK Government does not comprise a material